What the share-price charts say about Telstra and other telcos

Photo of Robert Brain By Robert Brain

min read

Time to dial up telco sector?

In early February, Telstra’s market capitalisation was about $66 billion, or nearly 5 per cent of the top 200 stocks in the S&P/ASX 200 index. As a result, it tends to be a foundation stock in the portfolios of many investors, especially given its dividend and blue-chip status.

The accompanying simple monthly price chart of Telstra since 2009 shows the share price bottomed in 2010 then rallied for four years. The price has twice tried to break above $6.50 in the past 12 months. On this monthly chart there seems to be price support at about $5.30 — this is where buyers have stepped in to snap up the available shares.

(Editor’s note: Do not read the following ideas as stock or sector recommendations. Do further research of your own or talk to a licensed financial adviser before acting on the themes in this story).

Telstra (monthly line chart, 2009 – 2016)

© February 2016, Robert Brain

Don’t forget that the price chart summarises the opinions and emotions of market participants and their views about fair value. It is easy for a share price to run up too far too quickly, and to see a pullback as shown in this monthly chart.

However, we need to be a little careful when studying a monthly, or even weekly, price chart because it does not show us the range in price within the month or week. The daily chart would show that the highest daily close price in February 2015 and the latest support level, are a little different to what’s shown on the chart above.

The second chart is a weekly candlestick chart, where each candle summarises the price action in one week. A black candle closed the week lower than the open for the week, while a white candle closed higher than the open.

This chart shows the Telstra share price fell until November 2015. Since then, the shares have made a series of higher peaks and higher troughs (a technical analysis uptrend) within what we call a rising Trend Channel on the chart. The two parallel lines of this channel indicate the extremities of the price action, and the price has moved up and down within this channel.

Telstra (weekly candlestick chart, August 2015 – February 2016)

© February 2016, Robert Brain

This trend channel indicates that the opinions of market participants have tended towards the optimistic and encouraged a gently rising share price.

One of the six tenets of Dow Theory says that an uptrend is likely to continue until it is confirmed to have finished. For as long as the share price keeps making higher peaks and higher troughs, the uptrend is still in place. The rising momentum indicator in the lower panel of the chart from November indicates the underlying price strength increasing.

The latest price data on this chart includes the close on February 18, the day Telstra announced its half-year results to the market. Within this trend channel, the price is still making higher peaks and higher troughs.

Telecom stocks and the sector index

How does Telstra compare to three other popular telecommunication stocks and how do they compare to the telecommunications sector index?

The next chart compares Telstra with TPG Telecom, Hutchinson Telecommunications and M2 Group Limited. In this weekly chart, the vertical axis is the percentage performance of each stock, and the sector index, since early January 2014.

Note that the sector index (XTJ) is closely correlated to Telstra (due to Telstra’s very large relative market cap). These stocks comprise the following percentage portion of the sector index: TLS 73, TPM 9, MTU 2.5 and HTA 1.2.

Four telecom stocks and the sector index (weekly percent comparison chart)

© February 2016, Robert Brain

This chart clearly shows that TPG Telecom has been performing consistently better than the other stocks in this comparison, at least until late 2015.

Hutchison Telecommunications

An important word about Hutchison Telecom – it does not have a very deep and liquid market. Many shorter-term investors and traders who might consider buying into this stock might also want to be able to exit the position quickly should conditions change.

That is, using the price chart shown here, if the share price were to fall below about 7 cents, we might have a stop-loss set to exit below this price. If so, we would want a high degree of confidence that we could actually sell the stock, and for that to happen there would need to be buyers at that price.

Hutchison Telecommunications (weekly candlestick chart)

© February 2016, Robert Brain

On this chart, the second pane indicates the volume of shares traded each week. This has varied between about 100,000 and 1.2 million.

The next pane of the chart shows the number of trades in each week (one trade is the sale/purchase of one parcel of shares, where each parcel might be just a few shares, or thousands of shares). This chart indicates that in the past 12 months there have been between about 10 and nearly 50 trades a week.

The bottom pane of the chart shows the dollar value of the shares traded each week. This has varied from as low as about $10,000 up to about $120,000. And here is the next issue: if you were to hold a parcel of shares valued at just $10,000 and you wanted to sell them all quickly, that is the equivalent of between about one day’s worth, or up to one week’s worth, of shares. And a parcel of this size would potentially move the share price.

The bottom line is that for the shorter-term investors and traders this stock may not be liquid enough.

About the author

Larger charts and more details of technical analysis on the charts shown above are available at Brainy’s Share Market Toolbox.

Robert Brain is a sharemarket analyst and Nimble Short Term Investor, and runs Brainy’s Share Market Toolbox web-based business supporting investors and traders. He is a national director of the Australian Technical Analysts Association (ATAA) and vice-president of the Melbourne ATAA Chapter. The price charts shown are produced using the Australian BullCharts software. Robert heads up the Australian BullCharts User Group.

The ATAA is a not-for-profit association of people interested in the application of technical analysis. Many members operate their own SMSF, some are private traders/investors and some are professionals in the financial services industry. The ATAA has nine Chapters around Australia.

From ASX

The ASX Charting Library covers more than 20 key charting topics and is a great place to start for investors who want to learn technical analysis basics.

The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate ("ASX"). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.

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